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Amazon Report Disappointing Q3 2021 Results – Claim Putting Customers First

Amazon is the latest eCommerce giant to announce their Q3 results for 2021 and similar to the eBay results they don’t make for great reading. It appears that the eCommerce marketplaces are struggling to maintain the momentum they saw in 2020 as more and more customers are returning to physical brick-and-mortar stores.

CEO Andy Jassy made a statement in the earnings report referencing the challenges that Amazon had faced and will continue to face over the holidays:

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter—and you can see that during every phase of this pandemic,”

“In the first several months of COVID-19, Amazonians played an essential role to help people secure the requisite PPE, food, and other in-demand items needed, and we worked closely with businesses and governments to leverage AWS to maintain business continuity as they responded to the pandemic. Customers have appreciated this commitment, which is part of what’s driving this past quarter’s AWS growth acceleration to 39% year over year; but, it’s also driven extraordinary investments across our businesses to satisfy customer needs—just one example is that we’ve nearly doubled the size of our fulfillment network since the pandemic began. In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

Andy Jassy, CEO, Amazon.

For years Amazon recorded losses as they heavily reinvested their money into building the impressive infrastructure that we all benefit from today. Andy isn’t lying when he says that they will always put the customer experience first, but what is interesting is that it was actually AWS that kept Amazon in profit for Q3. Amazon Web Services used to be Andy’s baby before he took over from Jeff Bezos as CEO earlier in the year. AWS beat estimates, with revenue jumping 39% to $16.11 billion, while analysts expected sales of $15.48 billion. AWS generated $4.88 billion in operating income in the period while operating profit at the parent company was just $880 million.

Even with all of these considerations, it didn’t help protect the company from market sentiment as the Amazon stock price dropped by 5% in aftermarket trading following the release of their Q3 earnings report.

You can see an abridged version of the Q3 announcement below and if interested can access their cash flow statements and tables here.

The Amazon Q3 Results

Amazon today announced financial results for its third quarter ended September 30, 2021.

  • Operating cash flow decreased 1% to $54.7 billion for the trailing twelve months, compared with $55.3 billion for the trailing twelve months ended September 30, 2020.
  • Free cash flow decreased to $2.6 billion for the trailing twelve months, compared with $29.5 billion for the trailing twelve months ended September 30, 2020.
  • Free cash flow less principal repayments of finance leases and financing obligations decreased to an outflow of $8.8 billion for the trailing twelve months, compared with an inflow of $18.4 billion for the trailing twelve months ended September 30, 2020.
  • Free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations decreased to an outflow of $3.9 billion for the trailing twelve months, compared with an inflow of $17.9 billion for the trailing twelve months ended September 30, 2020.
  • Common shares outstanding plus shares underlying stock-based awards totaled 523 million on September 30, 2021, compared with 518 million one year ago.
  • Net sales increased 15% to $110.8 billion in the third quarter, compared with $96.1 billion in third quarter 2020. Excluding the $0.5 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 15% compared with third quarter 2020.
  • Operating income decreased to $4.9 billion in the third quarter, compared with $6.2 billion in third quarter 2020.
  • Net income decreased to $3.2 billion in the third quarter, or $6.12 per diluted share, compared with $6.3 billion, or $12.37 per diluted share, in third quarter 2020.

Highlights

Innovating for Our Retail Customers

  • Amazon kicked off the holidays early this year, announcing Black Friday-worthy deals on October 4, including thousands of deals from independent sellers and handmade artisans and Amazon’s biggest ever selection of gift guides. Amazon launched new features like the Holiday Gift List to let customers easily create and share one list of gift ideas for everyone in their household, conveniently organized by recipients. The company also unveiled its new Holiday Prep Shop, which expertly curates top products across various categories to help customers prepare for seasonal celebrations.
  • Amazon expanded its faster Same-Day Delivery service to  Atlanta, Baltimore, Charlotte, Chicago, Detroit, Houston, Miami, Minneapolis, and Tampa—bringing the total number of cities with the service, which launched in 2020, to 15. The expansion has led to hundreds of new Amazon jobs in these cities offering competitive hourly wages and a flexible work schedule. Prime members can shop up to 3 million items across a dozen categories, such as baby, beauty and health, and electronics, and receive their order in as fast as five hours.
  • Amazon launched a new gift-giving feature that enables Prime members in the U.S. to use the mobile shopping app to send gifts with just the recipient’s email or mobile phone number. Recipients receive a gift message—by email or text—that allows them to accept the gift. They are then prompted to enter their preferred delivery address from their Amazon account to receive the gift.
  • In the U.S., Personal Shopper by Prime Try Before You Buy is now more convenient with a newly launched “automatic deliveries” feature, which lets customers receive personalized stylist picks directly at their door monthly, bi-monthly, or quarterly and only pay for what they keep. Prime Try Before You Buy also expanded to France, Italy, Portugal, and Spain. This Amazon Fashion service allows customers to have their favorite fashion items delivered free of charge, so they can try on their items in the comfort of their own homes, pay for what they keep, and then return the rest for free.
  • Amazon One, which lets customers use their palm to enter, identify, and pay at stores and other venues, was introduced for the first time at third-party locations. AXS, a leading digital ticketing company, integrated Amazon One into their contactless ticketing pedestals at Red Rocks Amphitheatre in Denver. The technology was also introduced in four venues at the Climate Pledge Arena in Seattle. Amazon One is now available at more than 70 Amazon physical retail stores and Whole Foods Market stores, and third-party locations.
  • For the first time, Amazon’s Just Walk Out technology is being integrated into two new Whole Foods Market locations in Sherman Oaks, California and Washington, D.C. that are expected to open next year. In addition, three new third-party venues have been enabled with Just Walk Out technology: the Javits Center store in New York City, marking the first time Amazon’s checkout-free technology is being used in a convention center; the Forum store in Los Angeles, marking the first time a West Coast-based arena has enabled a store with Just Walk Out technology; and the Climate Pledge Arena in Seattle, marking the first time Just Walk Out technology and Amazon One have been used together in a third-party location.
  • Amazon is now the first and only marketplace to protect customers in third-party product liability cases. The company expanded its A-to-z Guarantee to protect customers in the rare case that a defective third-party product causes property damage or personal injury. Amazon works with sellers and their insurance companies to address claims up to $1 million.

Entertainment

  • Amazon Games launched New World, a multiplayer online PC game. New World became the highest-played new game this year on Steam, a widely used distribution platform where players find, buy, and play games on PC. On Twitch, New World became the most-watched game during its launch week by hours watched, and the 12th highest-watched game ever by peak concurrent viewers.
  • Prime Video released the Amazon Original movie Cinderella, starring Camila Cabello, which was the No. 1 streamed movie across all films on streaming platforms during its opening weekend and the No. 1 streamed musical of the year.
  • Prime Video announced that The Lord of the Rings series will premiere September 2, 2022 on the streaming service, and an untitled spinoff will be produced for the popular series The Boys. In the fourth quarter, Amazon Original Movies The Tender Bar, starring Ben Affleck and directed by George Clooney, and Being the Ricardos, starring Nicole Kidman and directed by Aaron Sorkin, will release in theaters and follow on Prime Video.
  • Prime Video streamed its first-ever Union of European Football Associations (UEFA) Champions League soccer matches in Germany and Italy, and the first Ligue 1 soccer matches in France. In the UK, the U.S. Open final featuring 18-year-old rising star Emma Raducanu was the most-streamed tennis match in Prime Video history, following the historic partnership with Channel 4 to share live broadcast rights. Prime Video’s presentation of Thursday Night Football kicked off and introduced player tracking, a new feature driven by artificial intelligence (AI).
  • In its first global expansion since launching in the U.S. in 2019, IMDb TV launched in the UK to provide free premium steaming content to customers via Prime Video. The service will soon become available as a standalone app on Fire TV devices.
  • Amazon Music launched new original podcasts, including: SmartLess, the celebrity-interview show from hosts Jason Bateman, Sean Hayes, and Will Arnett, that recently landed on Podtrac’s Top 10 most-listened-to shows in the U.S.; Set It Straight, hosted by country music band Midland and featuring guests such as Garth Brooks, Sheryl Crow, and Matthew McConaughey; Badlands: Sportslands, the cult-classic from host Jake Brennan; 9/12 from prolific writer and podcaster Dan Taberski; and Uncommon Ground, hosted by political commentator, author, and lawyer Van Jones. Wondery, Amazon Music’s premium podcast studio, celebrated the return of the fan-favorite podcast Dr. Death Season 3: Miracle Man, which is now available in eight languages.

Amazon Devices and Services

  • Amazon introduced the Echo Show 15 with a 15.6-inch, 1080p HD display. It can be mounted to a wall or placed on the counter and is designed to help customers stay organized, connected, and entertained. The Echo Show 15 features a redesigned home screen, new personalization options with visual ID, and all-new Alexa experiences like a household calendar and sticky notes.
  • Amazon introduced an all-new lineup of Fire TV devices with its first-ever Amazon-built smart TVs—the Amazon Fire TV Omni Series and 4-Series smart TVs—and the all-new Fire TV Stick 4K Max. The Omni Series offers hands-free Alexa voice control, and both lineups feature 4K UHD resolution. The Fire TV Stick 4K Max is 40% more powerful than the Fire TV Stick 4K and has a new quad-core 1.8GHz processer, 2GB of RAM, and Wi-Fi 6 support for faster app starts and smoother streaming.
  • Amazon announced Astro, a new home robot that brings together advancements in AI, computer vision, sensor technology, and voice and edge computing to help customers monitor their home, look out for loved ones, and bring Alexa with them around the house.
  • Amazon introduced Amazon Glow, an interactive device that combines immersive projection, sensing, and video technologies to make users feel like they are in the same room. Designed with children and grandparents in mind, the device allows kids to see loved ones on an 8-inch display while, at the same time, reading stories, playing games, or creating art on a 19-inch touch-sensitive projected space below. Glow comes with one year of Amazon Kids+, bringing hundreds of hours of fun designed specifically for Glow.
  • Amazon announced Alexa Together, a new subscription service designed to help aging family members feel more comfortable and confident when living independently. Alexa Together includes 24/7 hands-free access to an Urgent Response emergency helpline, compatibility with third-party fall detection devices, and an optional Remote Assist feature so caregivers can help without having to be there in person.
  • Amazon announced three new expansions to the Halo family: Halo View, a health tracker with a color display for at-a-glance access to Halo health metrics; Halo Fitness, a service that gives members hundreds of studio-quality workout classes integrated with access to real-time individual health metrics as an on-display overlay; and Halo Nutrition, a membership experience to help build healthy eating habits.
  • Amazon and Disney announced ‘Hey, Disney!’, an entirely new kind of voice assistant that will work on supported Echo devices at home and across Disney Resort hotel rooms at Walt Disney World. By saying ‘Hey, Disney!’, users get access to interactive Disney storytelling experiences and entertainment, as well as jokes, fun facts, and special surprises featuring characters from Disney, Pixar, Marvel, and Star Wars. It will even make everyday tasks more magical, such as setting timers and alarms, and checking the weather or time of day. ‘Hey, Disney!’ is expected to be available for purchase in the U.S. in 2022 in the Alexa Skills Store for use on all supported Echo devices, and will be available complimentary for Disney Resort guests at Walt Disney World.
  • Ring and Blink introduced new home security devices and services with the Ring Alarm Pro, Virtual Security Guard, and Blink Video Doorbell. Ring Alarm Pro is a first-of-its-kind home security system that combines protection against break-ins, floods, fires, and network threats with a built-in eero Wi-Fi 6 router for connectivity. Virtual Security Guard is a new subscription service where third-party professional monitoring companies will visually monitor outdoor Ring cameras. The Blink Video Doorbell can be installed wired or wire-free and has a long-lasting battery life, 1080p HD day-and-night video, two-way audio, chime alerts via the Blink app when the doorbell rings, and the ability to connect the doorbell to your existing chime.
  • Amazon announced the next generation of Kindle Paperwhite with three new models. The new Kindle Paperwhite comes with a larger display, adjustable warm light, USB-C charging, and increased battery life. The new Signature Edition adds an auto-adjusting light sensor, 32GB of storage, and is the first-ever Kindle to offer wireless charging. The new Kindle Paperwhite Kids comes with one year of Amazon Kids+, a kid-friendly case, and a two-year worry-free guarantee.

Investing in Employees and Our Workplace

  • Amazon announced it will fund full college tuition, high school diplomas, GED diplomas, and English as a Second Language proficiency certifications for its U.S. front-line employees through its Career Choice program. More than 750,000 operations employees will be eligible for this benefit starting in January 2022. This expansion of education benefits is part of Upskilling 2025, Amazon’s $1.2 billion investment to provide free skills training to the company’s U.S. employees over the next four years.
  • For jobseekers looking for flexible employment opportunities this holiday season, Amazon announced it is offering 150,000 seasonal roles in the U.S., over 50,000 seasonal roles in Europe, and over 110,000 seasonal roles in India. Job seekers in the U.S. can receive an immediate contingent offer for seasonal roles with an average starting pay of $18 per hour, sign-on bonuses up to $3,000, an additional $3 per hour depending on shifts in many locations, and the opportunity to transition to long-term careers.
  • Amazon began operations at its state-of-the-art U.S. air cargo hub in Northern Kentucky. The $1.5 billion investment at Cincinnati/Northern Kentucky International Airport will create more than 2,000 new Amazon jobs over the next several years with industry-leading pay and comprehensive benefits. The Amazon Air Hub will serve as the primary hub for Amazon Air’s U.S. cargo network—enabling Amazon to process millions of customer packages per week.
  • Amazon hosted Career Day, a global event to help current and future employees grow their careers. More than 1 million people applied for a job at Amazon as part of the event, and over 2,000 Amazon recruiters offered 30,000 individual career coaching sessions to participants in Canada, France, Germany, India, Italy, Japan, Spain, the UK, and the U.S. Recruiters provided job seekers with professional advice to start, transition, or grow their careers—whether they want to work at Amazon or elsewhere. As part of the event, Amazon announced plans to hire 55,000 corporate and tech employees globally as well as 125,000 full- and part-time operations employees in hundreds of cities and towns across the U.S., with comprehensive benefits like healthcare and up to 20 weeks of paid parental leave, as well as access to Amazon’s Career Choice program.
  • Forbes ranked Amazon No. 4 on its World’s Best Employers 2021 list. To compile this year’s list, Statista surveyed 150,000 employees from 58 countries around the world and asked them to rate their willingness to recommend their employers to friends and family. The survey used feedback from Amazon employees working both across our logistics network and corporate offices.

Supporting Local Communities, Small Businesses, and the Economy

  • Amazon Future Engineer, the company’s global computer science education program for students from underserved and historically underrepresented communities, launched “Meet an Amazonian” for students from 3,000 U.S. schools. Students can learn about careers in technology directly from Amazon employees and participate in virtual class chats and computer science-themed fulfillment center tours. The company also launched Amazon Future Engineer in India, where it aims to reach more than 100,000 students from 900 schools in the first year of launch. The program is now available in Canada, France, India, the UK, and the U.S.
  • Amazon donated more than 1 million emergency supplies to communities affected by Hurricane Ida in Louisiana and the earthquake in Haiti. Amazon activated its Disaster Relief Hub and teamed up with humanitarian aid partners to quickly deliver and distribute supplies to those in need. The supplies included water, food items, shelter materials, medical equipment, power generators, industrial insulated food carriers, solar chargers, and water filters.
  • AWS announced it is committing $40 million in credits and technical expertise over the next three years to support organizations around the world that are developing solutions to improve health outcomes and health equity for underserved or underrepresented communities. The program is focused on increasing access to health services, addressing social determinants of health, and leveraging data to promote equitable and inclusive systems of care.
  • Amazon released its Small Business Empowerment Report, highlighting the company’s investments, programs, and tools to help small and medium-sized businesses thrive while selling in Amazon’s store. Amazon’s global selling partners―the majority of which are small and medium-sized businesses―have created an estimated 1.8 million U.S.-based jobs managing, operating, and supporting their Amazon-related businesses. In the 12 months ending August 31, U.S. sellers sold 3.8 billion products in Amazon’s store―approximately 7,400 products per minute.
  • Amazon hosted Amazon Accelerate, its annual U.S. conference for selling partners, where the company announced new tools and capabilities to help sellers thrive. Among the announcements, Amazon unveiled Local Selling, which enables sellers to start or expand their multichannel offerings by providing both in-store pickup and fast delivery to nearby customers, and new Global Selling tools to make it easier for U.S. third-party sellers to offer their products in Amazon’s 21 stores worldwide.
  • Amazon introduced Black Business Accelerator Connect, a new yearlong mentorship and networking benefit for participants in the Black Business Accelerator, the company’s initiative to provide Black entrepreneurs with resources, guidance, and support to succeed as Amazon sellers.
  • Amazon and Lendistry launched Amazon Community Lending, providing U.S.-based Amazon sellers access to short-term loans of up to $100,000 at competitive rates to sustain and grow their businesses. Lendistry is a Community Development Financial Institution that serves urban and rural small businesses in socially and economically distressed communities.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of October 28, 2021, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various factors detailed below. This guidance reflects our estimates as of October 28, 2021, regarding the impacts of the COVID-19 pandemic on our operations as well as the effect of other factors discussed above.

Fourth Quarter 2021 Guidance

  • Net sales are expected to be between $130.0 billion and $140.0 billion, or to grow between 4% and 12% compared with fourth quarter 2020. This guidance anticipates an unfavorable impact of approximately 60 basis points from foreign exchange rates.
  • Operating income is expected to be between $0 and $3.0 billion, compared with $6.9 billion in fourth quarter 2020.
  • This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.

A conference call will be webcast live today at 2:30 p.m. PT/5:30 p.m. ET and will be available for at least three months at amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

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